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Swiss Stocks Close in a Bear Market as SNB Exits Negative Rates

Despite the reputation of Swiss stocks as safe havens, the index has been weighed down by growth stocks getting hit amid widespread pessimism around rate hikes and rising bond yields.

September 22, 2022
4 minutes
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Swiss stocks fell sharply today, joining their European counterparts in a bear market. Investors are worried about central banks becoming more hawkish after the Swiss National Bank raised interest rates above zero for the first time in almost eight years.

The SMI Index fell to its lowest level in over a year on Thursday, extending its decline from its December record high to 21%. This marks a technical bear market for the index.

Despite the reputation of Swiss stocks as safe havens, the index has been weighed down by growth stocks getting hit amid widespread pessimism around rate hikes and rising bond yields. The biggest decliners this year include Roche Holding AG, Nestle SA and Sika AG.

While banks usually benefit from higher interest rates, Credit Suisse Group AG's stock hit a record low today on a report that the company is considering exiting the US market as part of a strategic revamp. Credit Suisse's challenges have weighed on the stock, even as other banks have benefited from the higher rates environment.

The Swiss index has crossed the threshold into bear territory, following in the footsteps of the German DAX and the Euro Stoxx 50, which both closed in bear territory in March. The S&P 500 followed suit in June, amid concerns about the central banks' hawkish stance. Zurich policy makers are trying to contain inflation, which is above 3%, but remains a fraction of that of surrounding countries.

This year's declines in the SMI have made it relatively more expensive compared to other major stock indexes. The SMI is now trading at 14 times estimated earnings, while the Euro Stoxx 50 is only trading at 10 times estimated earnings. This is according to Bloomberg Intelligence strategists, who have called the SMI's valuation "ever-more extreme."

When it comes to weathering a storm, it's best to seek quality over quantity. That's why you shouldn't hide in Swiss or Swedes – instead, focus on finding a few good people who can weather the storm with you.

Strategists Tim Craighead and Laurent Douillet have warned that if profit margins come under pressure in the coming quarters, the Swiss stock market could be in for a tough time. With margins already relatively tight, they say there is little room for error.

Arthur Jurus, senior investment strategist at Oddo BHF, says that while inflation will have some impact on Swiss companies, it will be less than on companies in the rest of the world. He notes that while there are still some economic risks, such as the energy crunch, Swiss companies have tended to perform better than those in other countries during global economic shocks.

Switzerland's economy has been more resilient than most, weathering regional headwinds better than its neighbors. Economists surveyed by Bloomberg believe that the Swiss economy will continue to grow until the end of next year, while slowdowns are predicted for the euro zone's three largest economies.

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Adan Harris
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